Schindler Hldg Ag Akt

And good morning, everybody. And welcome to our first quarter 2025 results conference call. My name is Lars Borson. I'm head of investor relations at Schindler. I'm here together with Paolo Campagna, our CEO, and Carla De Geisler, our CFO. Paolo will discuss our highlights of the Q1 results and our 2025 market outlook. And Carla will then take us through the financials. After the presentation, we're happy to take your questions. We plan to close the call at 11 o'clock. And with that, I hand over to Paulo. Paulo, please go ahead.

Good morning, everyone. I am pleased to be back to report on our performance in Q1, which I think is another quarter we can be proud of. Let me start by giving you some highlights on slide number three, as well as touch on some of the external challenges we are facing currently. First, Our top line development this quarter was encouraging. Our order growth accelerated to 6%, which is a growth level we haven't seen for almost two years, actually since Q2 23. Carla will give you more detail shortly, but I'm pleased that as a service company, we continue to deliver solid growth in our service and modernization business. In particular, Mott had a strong quarter, with close to 20% growth. But it is also worth noting that our new installations orders grew this quarter in value terms by 1%, despite the headwinds in China. I'm particularly pleased that we grew our any order intake by high single digit in EMEA in the quarter, as we now start to see evidence of the impact the rollout of the new model platform is having. Revenue growth returned to positive this quarter with growth across all our regions, with exception of China. And I was particularly pleased to see mod revenue growth for the group accelerated to double digits in the quarter as we executed well on the backlog. More generally, on modernization, I think we are making some good progress in terms of our product portfolio, organization, and strategy. And looking ahead, I expect more revenue growth to continue at this pace, growing double digit in 25. On profitability, we had a strong start in the year with our EBIT reported margin hitting 12%, up 110 basis points year on year. Good to see that our SG&A efficiency initiatives are starting to deliver savings and that our procurement and supply chain operations continue to support margins. Carla will provide you with the details. And it's not just the operating earnings, but also the conversion to cash, which make us happy. We delivered operating cash flow of 540 million Swiss francs in the quarter. We continue to do well on cash conversion as our team is working very hard to drive continued improvement in our net working capital. now let me touch on some of the challenges we are facing in our external environment firstly the inner market in america was off to a weaker start this year than expected and we see also softer leading indicators which have led us to downgrade the respective inner market outlook otherwise our market outlook is unchanged more about that shortly on tariffs and carla will walk you through our estimates on the expected impact But let me say that I think we are in a strong position to deal with the higher tariffs and to mitigate the impact in 2025. In my view, the bigger question is how tariffs will impact the economics of our customers' construction projects and our energy market more broadly. But for now, it's too early to have real visibility on that. Regarding the organizational changes, since I took over the CEO role earlier this year, let me say that the leadership transition has been well completed. We managed very smooth and seamless transition with no operational disruption. And as we discussed together in February at our full year results, we are staying on our strategic course we set two years ago. Finally, before I move on, just a word on our innovation launch and the X8 product which we presented at the Milan Design Week early in April. And you will notice I'm using the phrase innovation launch, not product launch, as we believe this is truly a new concept, leveraging innovative digital technologies, providing far more freedom for architects and setting new standards for sustainability. And the initial customer feedback has been very encouraging. Now moving to slide four, Schindler orders intake in Q1 25. First on service, our portfolio units continue to expand at a healthy pace. With the best growth in China and Asia Pacific, even as China conversions slow as a consequence of the anti-market decline in the last years. On modernization, as mentioned before, we are really pleased with a strong start in the year. We saw double digit growth across all regions, except China. The weaker growth in China this quarter, up low single digit, is primarily due to a tough comparison from Q1 last year and fewer large projects booked in this quarter. But the pipeline remains robust and we expect a re-acceleration in the coming quarters. Conversely, Southern Europe was a standout this quarter and we believe this region can continue to deliver some more strong mud growth during 2025. In a new installation, we saw growth across all regions except China. Strongly supported by the new model platform were already introduced. Our performance in the Americas was the highlight of the quarter, with both North and South America growing double digit, and we recorded also strong growth in Asia Pacific and a pick up in orders in Northern Europe. However, The weak market condition in China led to an overall low single digit decrease in NI order intake. Moving now to our market outlook for 25 on slide five. We continue to expect the service markets globally to grow at healthy pace across all regions. Modernization markets will continue to be very active with mid to high single growth across the world and double digit growth in China. as the government continues to support newer equipment, including elevators. In new installations, we continue to expect the global market to decline high single-digit, dragged down mainly by low-tense contraction in China, where residential floor space started declined more than 20-plus percent into 125, marking the third consecutive year decline in housing starts, in spite of the government's resolve to stabilize the property sector. We have decided to make a single revision to our 25-market outlook, as I mentioned, now expecting the America's new installation market to come down slightly in volume terms. This reflects the weaker start to the year in North America, down close to 10% in Q1, as well as more visible cooling off in the Brazilian NA market after the exceptionally strong 24. A word on the US market. You will recall that we saw activity pick up in second half of last year and had expected that momentum to continue on 25. But after a steep drop in the first quarter and in light of the softer leading indicators, and added uncertainty from trade policies, we have now lowered our expectations. Across EMEA, we see a good growth outlook in the Middle East and countries such as Spain, as well as signs of bottoming out in important German market. Asia Pacific, excluding China, is expected to grow mid single digit, driven by India and Southeast Asia. With that, Let me turn over to Carla to walk us through our financial results in more detail. Carla, please go ahead.

Thank you very much, Paolo. And good morning, everybody. So let me start with slide seven and referring to the left hand side of the slide. And there you can see that all our headline KPIs continue to point in the right direction. But allow me to give four quick observations before we dive into the details on the following slides. Firstly, as Paolo noted, the order growth accelerated to 6% this quarter. And yes, this is the highest quarterly order growth that we have seen since the second quarter of 2023. and as importantly it was broad based with the growth in all the regions and the segments outside of our chinese new installation business secondly we return to revenue growth in the quarter after the dip into negative growth in the prior quarter so now tracking in line with our full year guidance for 25 of low single digit growth I will elaborate on that later. Thirdly, we continue to make some really good progress on the journey towards our 13% EBIT reported mid-term target. This quarter, our reported EBIT margin came in at 12%. We had no restructuring charges in the quarter, so that helped. But I was nevertheless very pleased to see the pickup in efficiency savings this quarter. Lastly, I will highlight our operating cash flow again this quarter. Now, it continues to stay at a very healthy level, driven by a good development in the operating earnings and a stable net working capital, which is really pleasing after the big improvement that we have seen in 24. Now, moving to slide eight. And there, let me say first that it's nice to see some healthy organic growth return to the business with 6% order growth in local currency in quarter one. And as Paolo highlighted already, it's very much service and modernization driving that order growth. MOT grew close to 20% with double digit growth in all regions outside China. It's also worth noting that our new installation business actually grew overall in value terms this quarter, albeit very modestly, despite the headwinds from China. This growth was driven by EMEA and the Americas, which grew high single digit and mid-teens, respectively, in value terms in the quarter. China, new installation orders were down high 20s and Paolo referred already to it. We are very pleased to see the impact of the rollout of our new modular platform and the effect it is having on our order intake in EMEA. Now moving on to the right hand side of the slide, the revenue development. There you can see that our revenue grew 2.5% in the quarter. And as I mentioned to highlight, this quarter was the growth in modernization, which picked up driven by a good execution and a gradual normalization of the backlog rotation times. We expect the modernization revenue to stay at a very healthy level in 2025, clearly supported by our backlog, which was up 9% year on year at the end of the quarter. Now, a brief word on FX, which was broadly neutral to our financial performance in the quarter, a big but clearly the recent strengthening of the swiss franc will have a negative effect in 25 and we expect you know it could shave off amid let's say up to five percentage points of our top line in the three remaining quarters of the year assuming the fx rates stay at the current level And now let me also briefly touch on our backlog, because I realized there were already some questions regarding the restatement of our backlog. Now, it's very simple. this relates to our us business which has historically recognized order intake on a letter of intent basis instead of a contract signed basis and that has now changed and has been harmonized with the rest of the group so q124 has been restated accordingly And the impact on our Q1 order intake is immaterial, while the impact on our order backlog is approximately 500 million. Secondly, I'm pleased to report that our backlog margin improved again in Q1 sequentially. And that follows the improvement in quarter four. So two quarters of sequentially positive development after the flattish development that we saw in early 24, which is very encouraging. The legacy backlog, as many of you have followed closely in recent years, continues to be worked down. It stood now at 10% of the total backlog at quarter end, down from the 12% at year end 24. And I should also mention for completeness that the rollout of our new modular platform is progressing according to plan. You will remember that we have completed the rollout in Europe. And we are now ramping up in India and Brazil as focus areas and are finalizing the specs for the rest of the regions. Now moving on to slide nine to give you some insight on the EBIT performance. Allow me to focus on the drivers of our operational improvement, the 37 million uptake that you see in the bridge. And you will remember that through 24 that we shared that the majority of the operational improvement was driven by price and mix, while efficiency was rather a smaller contributor. And now this quarter, I'm super pleased to report that efficiency is the biggest contributor. This comes as savings from last year's headcount reduction program are starting to come through. So the SG&A cost savings are coming through in addition to the procurement savings, which are continuing to deliver. So price and mix were for sure contributors, but less than efficiency this quarter and less so than in prior quarters. And also, please note that we had no restructuring costs which were burdening the Q1 results. Now moving on to slide 10. And there you see our net profit and the fact that our net profit increased to 257 million in quarter one. The net margin continued to improve and stands now at 9.4%. As Paolo mentioned already, our operating cash flow was also strong, coming in at 540 million. driven by the uptick in the operating profit and the lower cash restructuring. Networking capital change was flat year on year, which I see as pleasing after the big improvements that we made last year. Now we will have for sure quarterly swings in our networking capital, as we also saw last year. But overall, I expect us to deliver another solid operating cash flow in 2025, even if we might not hit the exceptional level of last year. Now moving on to slide 11, a new topic in the presentation, and it's about the tariffs. I wanted to provide you with some details on how we see the likely impact from the tariffs on our business as per today. So based on the tariff levels as they stand today, we estimate an annual gross impact on our business of around 33 million Swiss francs. For 2025, we estimate the impact to be around 23 million Swiss francs. We have given you the breakdown in the table by tariff category on imports to our US business. So if we look at it by country, about 80% of the impact comes from the import to the US from China and 20% from the imports to the US from the rest of the world, and that is primarily Europe. And the estimates we have provided you include both our direct and indirect exposure. Now, in terms of the net impact, of course, we have initiated actions which we expect will, over time, fully offset the tariffs. So these include pricing actions, both for our existing backlog as well as for new orders. But it also includes supply chain mitigating actions and management of our suppliers. But it's clear that these actions, particularly the ones on the supply chain, will take some time to take effect. And we will likely have some burden from tariffs on our 25 performance. Now, moving on to slide 13. And that is the slide that brings me to our 25 guidance, which remain unchanged. So I reconfirm, we expect a low single digit revenue growth in local currency and an EBIT reported margin of 12%. Now, I'm sure you will ask why not a more ambitious margin guidance after the strong start of the year. So let me address this upfront and point you to four reasons why we expect the margin expansion to be more muted over the remaining three quarters of the year compared to quarter one. Firstly, as I just discussed, tariffs are a headwind in 2025 and there is a risk that we are not able to fully offset the gross impact in 2025 with our mitigating actions. Number two, remember that we guide on reported EBIT margin. We took no restructuring charges in the first quarter, so the up to 50 million of restructuring costs, which we have guided you to in 25 are still to come. thirdly china will be a greater burden in the coming quarters than it was in quarter one partly because china is a seasonally smaller contributor in q1 and partly because of the lower margin orders taken in in 24 obviously it will this will have a greater impact on our pnl as the year progresses And fourthly, we will have less margin tailwind from mix in the coming quarters versus Q1, which has less contribution from NI, our new installation business, and also our modernization business growth in the revenue mix. So let me conclude by thanking, you know, together with my colleagues in the executive committee, our close to 70 000 employees across the globe for their efforts so far in 25 we are facing a very uncertain and volatile market environment but i trust with the dedicated efforts and commitments of our colleagues all around the world we believe we are very well placed to continue to serve our customers and to do and win in the markets we play And with that, I hand over to Lars.